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Laches

November 19, 2010

There’s a term in Jewish law called “migo”. Inter alia, this term is used to denote a situation in which a witness is believed because, although his testimony is not as complete or convincing as might be desired, if he were going to lie, he could have come up with a far better fib. So it was interesting to see a CAFC decision last week in which the Court employed similar logic in reversing a District Court with regard to inequitable conduct.

The case in question is Cancer Research Technologies v Barr Laboratories. I posted about the Delaware District Court’s decision in this case last January: in the context of ANDA litigation, Barr stipulated to the validity and infringement of the asserted claims of CRT’s US 5,260,291, but argued that the patent was unenforceable for both prosecution laches and inequitable conduct. The former argument was based on the fact that over a period of ten years, the applicant had repeatedly obtained extensions and filed continuations without substantively advancing prosecution; only after the entrance into the picture of a deep-pocketed partner, Schering, having the wherewithal to bring a candidate compound through clinical trials, did the applicant proceed in 1993 to respond to the Examiner in a substantive way. The latter argument centered on the fact that although one of the inventors had published multiple articles describing negative test results for the claimed compounds, he had not seen fit to provide those results to the USPTO.

The district court found for Barr on both counts. On the laches prong, the court ruled that since CRT’s 1993 response was based on 1986 case law, CRT could have replied substantively much earlier in prosecution; that the only reason for delay was CRT’s attempt to find a strategic partner to help commercialize the drug; and that this was not a sufficiently good reason to delay prosecution. In reaching this conclusion, the District Court rejected CRT’s claim that under Supreme Court and CAFC case law, a party asserting a prosecution laches defense must show that during the period of prosecution delay, the defendant had begun to work the invention or made preparations to do so, i.e. the defendant had secured “intervening rights”. On the inequitable conduct side, the District Court ruled that test results showing that some of the compounds identified in the application as being “particularly active” were actually inactive were highly material to patentability, and that the withholding of such results from the USPTO, in particular when the inventor had published them elsewhere, implied intent to deceive the USPTO.

Last week, in a 2-1 decision, the CAFC reversed on both grounds. Regarding laches, the majority (Judges Newman and Lourie) held that Supreme Court precedent established that “intervening rights” were a necessary component of a laches defense, and that those intervening rights must be established by the defendant during the period of prosecution delay. Since Barr had not made preparations for copying the API during the period of prosecution delay, Barr had not obtained “intervening rights”, and thus could not avail itself of the laches defense.

Writing in dissent, Judge Prost asserted that the proper test for prosecution laches was a totality of the circumstances test, not a test requiring proof of the accused infringer being prejudiced during the period of delay. This, said Judge Prost, was not what Supreme Court or CAFC precedent required:

“By requiring this particularized prejudice, the majority sidesteps the real harm at issue in this case. The Supreme Court has explicitly recognized that delaying a patentee’s monopoly period harms the public by delaying its free use of the patented invention. Woodbridge, 263 U.S. at 48-49. Here, the applicant first filed the patent application disclosing temozolomide in 1982. By stalling prosecution for its own business purposes for nearly a decade, Cancer Research obtained a patent which does not expire until 2014--almost thirty-two years after the first application in this chain was filed. The majority downplays the public prejudice caused by this delay, 2 Maj. Op. at 12-13; however, Cancer Research’s conduct has prejudiced the public by extending its patent monopoly over temozolomide. Indeed, Congress has specifically recognized the public’s interest in obtaining affordable prescription drugs by enacting a regulatory scheme to expedite the availability of generic drugs."

The problem with Judge Prost’s dissent is twofold. First, in assessing laches, she would rely on an alleged harm to an amorphous public. But it’s not clear that the court’s focus should stray beyond the scope of the actual litigants before the court to consider effects of the prosecution delay on the general public. Whereas a litigant can explain to the court the particular harm he has suffered as a result of the prosecution delay, assessing harm to the general public, which usually is not directly represented before the court, can be an iffy proposition. (That’s part of the reason there are rules on standing and justiciability.) The “accused-infringer-must-have-aquired-intervening-rights-during-the-period-of-delay” rule set forth by the majority circumscribes the court’s purview of the laches argument to the litigants before it.

Second, even if one were to accept that the rationale Judge Prost proffers for the laches doctrine – namely that “by delaying [the public’s] free use of the patented invention”, the patentee has harmed the public, and should therefore be penalized by having his patent treated as unenforceable – is applicable in principle in all cases, nevertheless that rationale only applies if there actually is a commercial product for the accused infringer to make and for the public to benefit from. That’s not the case here. Judge Prost completely misses the point, fully (and unsurprisingly) appreciated by Judges Newman and Lourie, that in this case, without a patent, there never would have been a new drug, period, let alone a new drug that generic copyists could make at low price later on.

Put differently, the patentee’s prosecution delay engendered no delay of the public’s use of the patented invention, because without the patent there wouldn’t have been any use at all: the molecule would still be sitting on a shelf somewhere. The laches doctrine shouldn't be applied where, as here, there is no prejudice to the public at large or competitors in particular, let alone where the public benefit from the patent flows directly from the fact that there was prosecution delay.

Nevertheless, one wonders if the majority’s test isn’t too restrictive, and if the majority could have fashioned a test that would enable competitors to prevail on a prosecution laches defense even when they did not obtain “intervening rights” during the period of prosecution delay. But discussion of that thought is deferred to a later post.

As to inequitable conduct, the majority ruled that although data showing some claimed compounds to be inactive were material to patentability, the District Court erred in relying solely on the non-disclosure of that data to the PTO to infer intent on the part of the inventor to deceive the PTO. The error was that

“materiality and intent are separate requirements, and intent to deceive cannot be found based on materiality alone…A court cannot simply infer that an applicant ‘should have known’ the materiality of withheld information and thus intended to deceive the PTO because the applicant knew of the information and the information is material. A district court must find some other evidence that indicates that the applicant appreciated the information’s materiality…In this case, evidence that Stevens co-authored articles that contradict the disclosure of the ’291 patent specification does not alone establish that Stevens with-held those studies intending to deceive the PTO.”

Furthermore, said the panel, intent to deceive must be the single most reasonable inference that can be drawn from the evidence adduced. Here, the panel found that

“While publication to the scientific community is not the same as disclosure to the PTO and does not foreclose a finding of deceptive intent…the prompt publication of data in multiple articles over the entire course of prosecution is inconsistent with finding that intent to deceive is the single most reason-able inference to draw from the evidence in this case…”

That sounds an awful lot like “migo”: if the inventor wanted to pull a fast one on the PTO, why on earth would he have published several articles showing that certain compounds were inactive? He should have just kept his data secret. His public disclosure of that data, even if not to the PTO, does not evince deceptive intent.

The panel also noted that the inventor did not withhold from the PTO only information about the inactivity of certain compounds; rather, “the withheld information includes both positive and negative data regarding the claimed tetrazine derivatives”. Thus, concluded the majority, “an equally reasonable inference to draw from the evidence is that Stevens viewed publication of all the data as important to his career as a scientist but did not appreciate their potential importance to the patentability of the tetrazine derivatives patent claims.” Without a finding of intent to deceive, there was no basis for finding inequitable conduct, and the district court’s decision was reversed in this regard as well.

In dissent, Judge Prost asserted that had the withheld information been before the PTO, the scope of the claims would have been affected, a fact that even the majority would acknowledge; that the majority erred in requiring separate evidence for materiality and intent; that “the evidence presented at trial separately supports the district court’s findings on both prongs”; and that “when combined with the district court’s credibility findings regarding Dr. Stevens’s ‘explanation’ for his failure to disclose, is absolutely sufficient to support the conclusion that highly material evidence was withheld from the PTO with intent to deceive.” As to the most reasonable inference to be drawn from the evidence, the judge believed, apparently on procedural grounds, that it was not for the appellate court to second-guess the district court in this regard: “We should not draw inferences that the district court has already excluded based on its own credibility findings with respect to Stevens’s explanations for the withholding.”

When discussing the district court case, I stated that the fate of the inequitable conduct finding would “hinge in no small part of the CAFC judges assigned to this case”. It is hoped that the CAFC’s forthcoming en banc decision in Therasense will make inequitable conduct outcomes more judge-independent, by relegating this defense to cases in which there is actual fraud on the PTO.